which takes into account all the available information on the national numerical fiscal rules. The
indicator is calculated in two steps. First, we calculate the potential contribution of each rule to the 'fiscal
rule index' by multiplying the share of government finances covered by the rule by the indicator of the
strength of the rule. Second, we sum these indicators by country, taking into account their changes over
time.^25 In case two rules apply to the same general government sub-sector, we follow the same
methodology as for the calculation of the 'fiscal rule coverage index'. We give a weight of 1 to the rule
which can be considered as the strongest one, based on the index of strength of fiscal rules, and a weight
of 0.5 to the weaker rules. Following the same approach but taking into account only expenditure rules, a
time-varying 'expenditure rule index' was constructed for each Member State.^26
The influence of fiscal rules on budgetary outcomes depends on their characteristics
Like in section 3.4.2, we augment standard fiscal reaction functions with our 'fiscal rule index', which
incorporates information on the coverage and characteristics of the numerical fiscal rules in the EU-25
Member States.^27 Table 7 reports the results of the econometric analysis.
A remarkable result is that the inclusion of information on the strength of the individual fiscal rules
improves the quality and robustness of the relation between fiscal rules and budgetary outcomes. When
comparing this regression to the one including the 'fiscal rule coverage index', it appears that the
coefficient measuring the influence of fiscal rules on budgetary outcomes is clearly more significant.^28
The level of this coefficient is also higher, suggesting that a change in the coefficient has a larger impact
on budgetary outcomes (all 'fiscal rule indexes' and 'fiscal rule coverage indexes' were standardized, so
that the size of the coefficients in the various regressions can be compared). Overall, these results provide
a strong indication that the characteristics of fiscal rules matter for their influence on budgetary
outcomes.
In order to test the robustness of the results, we estimated other regressions including alternative
calculations of the 'fiscal rule index' using different weighing for the calculation of the index of strength
of fiscal rules (in practice we used the low and high values of the brackets in Figure 11). It appeared
(regressions results are not reported here) that weighing differently the various components of the index
of strength of fiscal rules does not change the results significantly, suggesting that the relation is not
strongly sensitive to the choice of the weights for the aggregation of the criteria taken into account in the
calculation of the index on the strength of fiscal rules.
(^25) For example, take the case of a country having three fiscal rules in year n: an expenditure rule to contain developments
in health care spending (index of strength x) covering about a percent of general government expenditure; a budget
balance rule for local governments (index of strength y) covering about b percent of general government finance and an
expenditure rule at central government level (index of strength z) covering about c percent of total general government
expenditure. The indicator for that country in year n equals to ax + by + c*z.
(^26) In order to test the sensitivity of the results to different choices for the weighting of the five criteria used in the
calculation of the index of strength of fiscal rules, we calculated the 'fiscal rule index' in two alternative ways, taking
into account the low and high values of the possible index as illustrated in Figure 11.
(^27) In the analysis, the 'fiscal rule index' is calculated using an index of strength of fiscal rules that gives an equal weight to
the five criteria entering in the calculation of the indicator.
(^28) The coefficient becomes significant at the 5 percent level as against 10 percent in the regression including an index
taking into account only the share of government finances covered by fiscal rules.